Emil Ford Lawyers

A warning to board members of schools and not-for-profits

In a recent decision of the Supreme Court, the director of a company that failed to remit more than $600,000 of withholding tax to the ATO was held to be personally liable for that amount. This case should remind board members of schools and not-for-profits that they too could be liable for penalties relating to breaches of the Taxation Administration Act 1953 (‘TAA’) if they fail to take all reasonable steps to ensure that their company complies with its taxation obligations.

Mr Tannous was the sole director of 1 Group Australia Pty Ltd, which, on multiple occasions, did not pay withholding tax in respect of the salaries and wages it paid to its employees. Once these due dates passed, Mr Tannous, as the director of a non-complying company, became liable automatically to a penalty equal to the amount that the company did not remit.

Since Mr Tannous’ company had not met its payment obligations, had not appointed an administrator and had not begun the process of winding up the company, he was in breach of a section of the TAA. Mr Tannous was then sent two Director Penalty Notices (DPNs) by the Deputy Commissioner of Taxation (DCT), which he did not respond to.

At the hearing, Mr Tannous acknowledged that the company had failed to pay the withholding tax, but he tried to argue that he had not received the first DPN until after the date of compliance had passed. He also claimed that the DNPs were ‘defective’ because they did not explain the main circumstances in which a penalty can be remitted. Mr Tannous failed on both of these grounds. Schools and not-for-profits may be interested in the Court’s conclusion that the Deputy Commissioner of Taxation did not actually have to physically provide the notice to Mr Tannous. It was sufficient that the DCT assured the Court that a stamped envelope with a DPN was placed in a post box with the correct address.

The main warning that schools and not-for-profits should take from this case is that under many pieces of legislation, board members of companies and incorporated associations can be held personally liable for penalties borne by the company or incorporated association. That includes remitting money to the ATO. If your school or not-for-profit is registered as a company limited by guarantee or an incorporated association, the failure of a board member to comply with revenue legislation, work health and safety legislation or other duties (such as failing to act in the best interests of the company/ incorporated association or engaging in dishonest/unconscionable conduct) could become a very expensive exercise for them personally.

We encourage schools, not-for-profits and their board members to contact or if they want to know more about the duties they are expected to perform.

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